Sept 20, 2012 (LBO) - A 12 percent or five Indian rupees per litre hike in diesel in prices in will reduce India's subsidy cost by 200 billion rupees in the year to March 2013, Standard and Poors' said.

India has also rationed the issue of subsidized liquefied petroleum gas to six 14.2 kilogram cylinders per household.

India will still spend 1.7 trillion on fuel subsidies this year.

In so-called third world countries, rulers spend massive amounts of money collected from the people, including through food taxes on subsidizing energy, most of which is largely consumed by the rich and industry.

Credit taken to subsidize energy which is ultimately accommodated by the central bank can depreciate currency and further impoverish wages earners and destroy lifetime financial savings.